The Fed uncovered a huge secret from the financial crisis yesterday, the banks that participated in the Feds emergency-lending tool: discount-window borrowing. The paperwork released has data from August 8, 2007 all the way until March 1, 2010.
Discount-window borrowing allows banking institutions to borrow money from the central bank when they are in a pinch. The loan term is usually short, and has a discounted interest rate. Initially, the Fed refused to reveal which specific institution sought emergency funding, but the supreme court demanded disclosure.
The latest news about discount-borrowing has sparked some controversy considering a revelation of the financial institutions that actually borrowed from the Fed would make them more vulnerable and less likely to seek help in the future. The four-year period disclosed is during the hardest economical times the nation has faced, especially since the collapse of the Lehman Brothers Holding Inc., took place in September 2008. It was a month later that discount-window lending was at it’s highest at $110 billion.
European Banks Borrowing
The European banks made the most use of the discount-window in the peak month of October were; Dexia SA with $26.5 billion borrowed in one day, and Depfa Bank with $24.6 billion on the same day. Banks continued to utilize the discount-window to meet liquidity requirements by withdrawing tens and billions of dollars daily.
Bank Name Amount Borrowed Discount-Window Utilized Side Note
Citigroup Inc. $3.40 Billion Twice Citigroup was also bailed out three times by the U.S. Government which may have lead to the low borrowing numbers.
Bank of America Corp. $6.1 Billion Five Times The borrowing took place five different periods over a span of two years.
J.P. Morgan Chase & Co. $6+ Billion Eight Times The borrowing took place between January and August 2008.
Washington Mutual $2 Billion One Time. This was the amount borrowed on the day the company was seized by regulators and sold to J.P. Morgan.
The banks above were not the only banks that were borrowing from the discount-window, Wachovia Corp. was one of the biggest emergency loan borrows. The bank borrowed a total of $29 Billion from the Fed’s discount window on Oct. 6, 2008. Wells Fargo soon took over the bank and the loan was reportedly repaid in full before it was completed.